CPIM Practice Exam

Why is it important to calculate the safety stock?

1. To minimize carrying cost

2. To ensure inventory is always available

3. To maximize order quantities

4. To determine the optimal reorder frequency

The correct answer is: To ensure inventory is always available

Calculating safety stock is essential to ensure that inventory is always available, particularly in the face of variability in demand and supply. Safety stock acts as a buffer against fluctuations, preventing stockouts when unexpected increases in demand occur or when there are delays in replenishment. By maintaining an adequate level of safety stock, organizations can meet customer demands without interruption, thereby improving service levels and customer satisfaction. Organizations may face uncertainties like lead time variability, forecast inaccuracies, and unexpected demand spikes. Safety stock helps hedge against these uncertainties, enabling companies to fulfill orders even when conditions deviate from the expected norms. As a result, the availability of products is consistently maintained, ensuring that customers do not encounter delays or shortages. The other choices, while related to inventory management, do not capture the primary purpose of safety stock as effectively as ensuring availability does. Carrying costs, order quantity maximization, and reorder frequency are important factors in inventory management, but they do not directly relate to the critical function of safety stock in providing a buffer against uncertainty in demand and supply.